China's new-home prices slide further

EstherFung

SHANGHAI -- The average price of new homes in 70 Chinese cities fell in October for the sixth straight month, but at a slower pace as some home buyers returned to the market after Beijing eased mortgage rules.

The policy moves, however, have had a limited effect on a sluggish market characterized by large inventory and significant price pressure, as property developers compete to attract potential home buyers.

On a month-over-month basis, prices in October slipped 0.8% compared with a 1.0% fall in September, according to calculations by The Wall Street Journal. This is the second consecutive month that average prices have fallen less sharply. The National Bureau of Statistics doesn't break out monthly figures.

On a year-over-year basis, the average price of new homes declined by 2.5% in October compared with a 1.1% fall in September, which was the first annual decline in nearly two years.

"Home prices have stabilized, but it hasn't bottomed yet," said James MacDonald, head of research at property consultancy Savills China. "It's difficult to see a pickup in prices in the next few months," he added, noting that the winter months might curb some home hunting activity among buyers.

Many investors are concerned that a prolonged property slump could further erode growth in the world's second-largest economy. Analysts estimate that real estate accounts for nearly one-quarter of gross domestic product when construction, cement, steel, chemicals, furniture and related industries are factored in.

Excluding public housing, private-sector home prices fell in 67 of the 70 cities in October from a year earlier, up from the 58 cities that posted declines in September. On a month-over-month basis, home prices fell in 69 of the 70 cities in October, unchanged from September.

The authorities have recently introduced measures to prop up the housing market. The central bank and banking regulator in late September loosened mortgage restrictions by extending to existing homeowners the preferential rates and terms that first-time buyers enjoy. The housing ministry has also made it easier for home buyers to secure loans from the housing provident fund.

Housing sales in October showed a smaller year-over-year decline compared with September, which had also showed a more moderate decline from August.

The improvement in the sales figures appears to be driven by improved sentiment rather than by an expansion in credit, analysts noted.

Many banks haven't loosened their purse string despite the directive from Beijing, with most only offering discounts of at most 10% below benchmark rates because of unattractive margins. The government has reminded them that they are allowed to offer discounts of as much as 30% below benchmark.

Gavekal Dragonomics estimated that total credit growth slowed to 14.3% year-over-year in October, from 14.7% in September, which is the slowest since 2006.

"The latest policy move had a stronger effect on sentiment than it will on credit creation: it has delivered a clear message that central policy makers won't let the property market go into a free fall," said Rosealea Yao, an analyst at Gavekal Dragonomics in a research note.

"So to the extent that expansion in property sales is dependent on credit growth, the environment does not look positive," said Ms Yao, though she added that she expects a moderate rebound in housing sales in the next six to nine months, due to further property policy loosening.

But some analysts warned that those measures won't quickly solve the longer-term issues of excess inventory or rising leverage, and noted that some developers would do well to further reduce prices in order to pare down their holdings.

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